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29 January, 03:54

The accounting rate of return requires the use of the accrual basis of accounting and therefore, the annual depreciation must be caluclated. How do you calculate the annual depreciation?

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  1. 29 January, 04:49
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    Annual depreciation is calculated by dividing the cost of an asset over its useful life.

    Explanation:

    For example, if a company is looking to invest in new machinery which costs USD 300,000 and the machinery is expected to have a useful life of 10 years with no scap/salvage value, then the annual depreciation would be computed as:

    USD 300,000/10 = USD 30,000 depreciation expense per year.
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